Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.7000.
- Add a stop-loss at 0.7250.
- Timeline: 1-2 days.
Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.7250.
- Add a stop-loss at 0.7000.
The AUD/USD pair pulled back as the US Dollar Index (DXY) rebounded amid rising risks in the market. It retreated to 0.7130, slightly lower than last week’s high of 0.7197. It also remains much lower than the year-to-date high of 0.7275.
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US Dollar Rises Amid Rising Risks
The AUD/USD pair retreated as geopolitical risks rose. Talks between the US and Iran have ended, and the two sides continued launching strikes against each other.
As such, there is a risk that the two sides will continue fighting, which explains why crude oil prices are rising. Brent, the global benchmark, jumped to $98 from last week’s low of $89.
The pair also retreated after President Donald Trump introduced more risks to the economy. He announced that his administration will implement tariffs against 60 countries, including China, for human rights violations. This is part of the president’s way of working around the recent Supreme Court decision that ruled against his reciprocal tariffs.
The AUD/USD pair also pulled back as investors reacted to the latest US jobs report. According to ADP, the economy created 122k jobs, higher than the median estimate of 118k. This report came after another one showed that the number of jobs vacancies jumped in April this year. That is a sign that the Fed will maintain a hawkish tone this year.
The Bureau of Labor Statistics (BLS) will publish the latest jobs report on Friday, which will provide more information about the state of the US economy. A stronger-than-expected jobs report will point to a more hawkish tone.
The AUD/USD pair also reacted to the weak Australian GDP report, which reduced the possibility that the Reserve Bank of Australia (RBA) will hike interest rates in this month’s meeting. This report revealed that the economy expanded by 2.5% in the first quarter.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD pair has slumped in the past few days, moving from a high of 0.7276 in May to the current 0.7130. It has retreated below the 25-day Exponential Moving Average (EMA).
Worse, the pair has formed a bearish flag pattern and is now along its lower side. The Relative Strength Index (RSI) has moved below the neutral point of 50.
Therefore, the pair will likely have a bearish breakout, potentially to the support level at 0.7000. On the flip side, a move above 0.7200 will invalidate the bearish outlook.
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